Clydesdale Bank Face Fine!

For most people mortgage payments are their biggest monthly outgoing and we all budget on the assumption that the information our mortgage lender gives us about what we need to pay is correct.

In April 2009, the Clydesdale bank, which is owned by National Australia Bank, realised that it had been miscalculating the repayments for 44,500 variable rate mortgage borrowers, due to a computer error. As a result, 22,000 borrowers were left with a shortfall. In some instances the undercharging dated back to 2005.

The bank then sought to pass all of the consequences on to its customers, expecting them to find the money to remedy mistakes which were entirely of Clydesdale’s making.

The lender sent letters to its customers suggested that they had ‘no alternative’ but to bring their repayments up to date putting thousands of customers at risk of potential financial hardship.

The error was corrected in 2010 but it left thousands of mortgage borrowers with unexpected increases in their monthly repayments, both to correct the error and catch up on the amount they owed on the mortgage.

The fact is that by law, customers could have rejected these demands because the error was not theirs.

So it seems then that the Clydesdale failed in that basic duty to its customers when it discovered the problem.

Tracey McDermott, director of enforcement and financial crime at the Financial Conduct Authority (FCA), said “Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services.”

Therefore the Financial Conduct Authority (FCA) has fined the lender £8.9 million for failing to inform customers clearly of their rights after it miscalculated the repayments. The fine would have been higher were it not for the banks volunteering its own compensation scheme.

The Financial Ombudsman Service (FOS) also initially received roughly 600 complaints about the Clydesdale decision to adjust borrowers’ mortgage repayments, the majority of which have been upheld in the customers’ favour.

So with the fine imposed and compensation the bank is to pay more than £20 million to 42,500 mortgage borrowers it has been deemed to have treated unfairly.

David Thorburn, chief executive of the Clydesdale bank said: “Where our error resulted in a capital shortfall on a customer mortgage, the Bank will write off the entire shortfall, make a payment representing interest costs and recalculate the reduced payment amount where appropriate.

The bank has promised to contact all affected customers and it says it will automatically compensate 14,000 customers who underpaid within 48 hours. Though, it has stopped short of compensating all customers immediately.

However, in recent news it seems the bank’s attempt to offer speedy redress in the wake of the fine led to some customers receiving a second compensation payment.

In conclusion, it appears that the Clydesdale is now paying the price for its decision to put its bottom line ahead of the need to ensure its customers were treated fairly!